How To Invest Safely In Penny Stocks

Penny Stocks or Microcap stocks are often referred to as the most risky types of investments a trader can make. I won’t deny that they can be risky at times because there is risk involved in any type of investing from penny to blue chip stocks. Although Blue Chip stocks may have a reputation for being “safer” then Microcap stocks one needs to just ask one of the millions of Americans who had their 401k retirement plans wiped out just two years ago when Blue Chip stocks were dropping like flies.

So how do we invest safely in Penny Stocks

Penny stocks don’t have to be a risky investment if you have a solid strategy. If you follow some basic trading fundamentals you should go into every trade confident that you are doing everything possible to maximize your profits and minimize your losses.

First off, you should never go into any trade and not be willing to lose your entire investment. Although, this is not the attitude I want you to have going into the trade it is still sound advice. Research the company that you are investing in there are several ways to do this one of them being subscribing to our always FREE newsletter. The benefit of this is that you are getting the right information at the right time. Another way is to by visiting the company’s website and checking out the investor relations section there you can view all of their SEC filings and latest press releases. Also, don’t forget to analyze the charts most online brokers provide their members with the tools to do some in depth technical analysis. Some key indicators you want to look at are its Price per Share, The Average Volume, and the Bid/Ask Spread. By looking at these 3 indicators you can develop strategies for your entry (price you want to buy at) and exit (price you want to sell at) price. You want to make sure that the current price per share around a price that you’re comfortable buying at. By looking at the past months chart you can tell if the stock is trading closer to resistance or support level. Also you want to see at what type of volume the stock is trading at on average. A stock that is trading at low volume can be a big red flag it means that there is not a lot of buyers and seller for that stock. One of the reasons for the low volume is probably a largeBid/Ask Spreadwhich we discussed in a previous article.

At the end of this paragraph there is a link for my FREE Penny Stock Gains Loss Spreadsheet. Please download it ASAP as it will be a great addition to your investing strategy. I will go over the spreadsheet with you and hopefully this will answer any questions that you might have.

Row 5: Total Cost of Trade This is the total cost of your buy trade (PPSxNumber of Shares+Commission Fee).

Row 6: Amount of Change (+ or -) This is the amount of change that you expect the price to change. Now with stocks the price can either go up or down so the amount can be either positive or negative. You can plug in different amounts to give yourself results for different scenarios.

Row 7: Price you want to Sell at (Exit Point) This is the price you want to sell the stock at. Based on the amount of change this price can vary. This is a good way to develop a solid exit strategy.

Row 8: Percentage Change (+ or - ) This gives you’re the amount of change between your buy and sell price in my example I made a +45.66% increase on my trade before commission fee on my sell trade.

Row 9: Total Amount of Shares Sold This is the total amount of shares that you are selling. This doesn’t have to be equal to the total amount that you have bought as some traders like to just sell a certain percentage of the total shares they own.

Row 11: Gross Total amount of your trade including your starting balance (+ or -) any your gains or losses.

Row 12: Your Net Gain or Loss Amount of money gained or loss.

Row 13: Cash % Increase or Decrease Your percentage of gain or loss.

If you follow this spreadsheet and use it as a guide you should never experience a major loss to your portfolio. Use this spreadsheet as a guide to set your buy and sell limits. By doing this you can be confident that you will be getting the most out of your investment with as little amount of risk possible. Remember to sign up for our FREE newsletter before you leave to get the latest hot penny stock alerts.